Japanese bonds slip

Japanese government bond prices were mostly lower on Friday after Germany approved an expansion of the eurozone bailout fund, supporting stocks and other risk assets but reducing safe-haven demand for debt, pushing the benchmark 10-year JGB yield to its highest in a month.
Japanese investors adjusted positions in cash bonds ahead of their mid-year book closing on Friday, prompting selling in JGB futures, which are starting to show bearish technical signals. "JGBs may face pressure in the near term as the 'risk-on' mood is recovering and as the JGB market has been peaking at multi-month highs," said a trader at a European brokerage firm.
German Chancellor Angela Merkel's coalition party voted to enhance the European Financial Stability Facility's powers, joining 10 other countries that have approved the expansion and raising hopes that policymakers can take action to prevent the debt crisis from worsening. The 10-year cash bond yield climbed 2.5 basis points to 1.025 percent, the highest since September 5. Players sold 10-year JGBs Friday afternoon, and this triggered selling in JGB futures, the trader said.
December 10-year JGB futures were down 0.25 point at 142.23, after hitting their lowest since September 1 at 142.16. They broke below the upper end of the Ichimoku cloud at 142.26 on Friday, for first time in about three months. JGBs, however, gained for the second straight quarter in July-September. The 10-year yield declined 10.5 basis points from the previous quarter, helped by eurozone debt crisis and by concerns over global economic slowdown.
But gains were subdued compared with the previous quarter as many investors were eager to take profits at yields below 1 percent, as historically falls below that level have not been sustainable and are always followed by selloffs, such as in August and October last year. Meanwhile, the JGB market was expected to be supported by risk-averse sentiment in the medium term as worries persist over the eurozone, which still faces numerous hurdles ahead of a workable resolution to its problems.
Mitsubishi UFJ Morgan Stanley revised its forecast for 10-year JGB yields in the second half of the fiscal year ending in March 2012 to 0.95-1.25 percent from 1.05-35 percent. It said the risk of global economic slowdown is increasing and that the impact of increased debt issuance to fund reconstruction after the March earthquake is likely be less than previously thought.